Gratuity Concerns: Can Employers Legally Stop Paying It Altogether?

Dear Seniors, I want to know whether any employer, such as a government autonomous organization or a private organization, can withdraw from paying gratuity. Can an employer declare that henceforth no gratuity will be paid to any employee? Please answer.

Payment of gratuity to eligible employees is binding on the company, and gratuity is an inherent right of an eligible employee. Therefore, this right cannot be deprived by any employer.

Thanks and regards,
Ninad Joshi

As per Section 5 of the Gratuity Act, the appropriate government may exempt any establishment from the operation of the Act. This is provided if the government is of the opinion that the employees of the establishment are receiving gratuity payments or pensionary benefits not less favorable than the benefits conferred under the Act.

So, if any establishment provides pensionary benefits to its employees that are more favorable than those provided in the Act, it can only be done with the prior approval of the appropriate government. Otherwise, it is not possible.

This is not straightforward as mentioned in your query, whether it is a government autonomous or private organization.

Applicability of the Gratuity Act

The Gratuity Act is applicable to establishments coming under Section 1(3) of the Payment of Gratuity (POG) Act. It is not applicable to government organizations unless specifically notified by the government.

Regards

Applicability of POG to Government Organizations

It is incorrect to say that the POG (Payment of Gratuity) Act is not applicable to government organizations. It is applicable to factories, mines, plantations, ports, railways, shops, and commercial establishments that belong to or are under the control of the government. However, it is not applicable to government servants who are governed by separate rules. In Kerala, the POG Act is also applicable to the cooperative sector.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

If the employees are under the New Pension Scheme, which virtually has no pensionary benefits, can the organization, which was established by a special act of parliament, withdraw the payment of gratuity?

Written Evidence Inquiry

Mr. Varghese, is there any written evidence of your information that it is not applicable to government servants governed by separate rules?

Private Sector Organizations

What about private sector organizations – can they do it?

Thank you.

Please see section 1(3) of the POG Act 1972, which shows the applicability of the Act. It does not cover government departments or servants other than those mentioned in clauses (a), (b), and (c) of section 1(3). Government servants governed by state/central service rules have separate provisions for gratuity. If the organization is one mentioned in section 1, then its private or public nature makes no difference. For more information, please contact me.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

I am reproducing sections 1(3) and (3-A) as follows:

1(3): It (Act) shall apply to:

- Every factory, mine, oilfield, plantation, port, and railway company;
- Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;
- Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.

1(3-A): A shop or establishment to which this Act has become applicable shall continue to be governed by this Act, notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten.

Now, can anybody tell all the members where it is mentioned about the private sector or public sector?

According to my understanding, the POG Act is applicable irrespective of whether it is the private sector or the public sector. And once the Act is applicable, it remains applicable forever.

I am also reproducing section 5 as follows:

5. Power to Exempt:

1. The appropriate Government may, by notification, and subject to such conditions as may be specified in the notification, exempt any establishment, factory, mine, oilfield, plantation, port, railway company, or shop to which this Act applies from the operation of the provisions of this Act if, in the opinion of the appropriate Government, the employees in such establishment, factory, mine, oilfield, plantation, port, railway company, or shop are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act.

2. The appropriate Government may, by notification and subject to such conditions as may be specified in the notification, exempt any employee or class of employees employed in any establishment, factory, mine, oilfield, plantation, port, railway company, or shop to which this Act applies from the operation of the provisions of this Act if, in the opinion of the appropriate Government, such employee or class of employees are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act.

3. A notification issued under subsection (1) or subsection (2) may be issued retrospectively to a date not earlier than the date of the commencement of this Act, but no such notification shall be issued so as to prejudicially affect the interest of any person.

According to me, this section has no meaning. You are exempted from the operation of the provisions of the Act and not exempted from making payment of Gratuity.

I hope Dear Harshal got the answer.

Thanks and regards,

Keshav Korgaonkar

[Email Removed For Privacy Reasons], Insurance Advisors, Corporate Advisors, Legal Advice, Wage and Salary, Labour Compliance Audit, SSI Registration, NOC from

As mentioned above, government organizations governed by special service rules do not come within the ambit of the Payment of Gratuity Act. But does that mean they can arbitrarily withdraw from the payment of gratuity? Given the fact that it is under the New Pension Scheme, which is not operational in its full form—only Tier-I is active—pensionary benefits are uncertain.

I would also like to mention that banks do not fall under this act; they follow the Desai Award for terminal benefits. Can they also opt out of the payment of gratuity at any time?

Thank you.

Gratuity Payment for Contract Employees in Government Autonomous Bodies

A central government autonomous body is registered under the Society Registration Act, 1860. The employees of the institute are covered under the EPFO. The institute pays gratuity to employees who retire from the institute but is withholding gratuity payment for employees appointed on a five-year contract period who have resigned after serving more than five years to join another government institute. Is this action legally sustainable, or does the institute have to necessarily pay gratuity to all of its employees?

Does the institute have to compulsorily follow the Gratuity Act 1972, or can it continue to follow the CCS (Pension) Rule, which does not provide for gratuity payment to employees appointed on or after 1/1/14 and is replaced by NPS? It may be noted that the institute is still continuing with the EPFO scheme and has not switched to the NPS.

Regards,
Hridan

Gratuity Payment Under the Payment of Gratuity Act, 1972

Societies registered under the Societies Registration Act, 1860, were already brought under the purview of the Payment of Gratuity Act, 1972, by means of a notification issued under section 1(3)(c) of the Act, effective from August 22, 1997. The existence of any scheme under any law for Provident Fund and Pension cannot take away the benefit of gratuity under the Payment of Gratuity Act, 1972.

Irrespective of the nature of employment, whether regular or on a contract basis, if the employee renders continuous service of not less than five years in an establishment covered by the provisions of the Payment of Gratuity Act, 1972, on the date of termination of his employment, he should be paid gratuity.

Dear Sir,

Thank you for your reply. I would like to know if it would be appropriate for me to file a complaint before the labor commissioner for non-payment of gratuity, or if I should approach the CAT. My employer in this case is a central autonomous institute, and the gratuity payment has been on hold for the last 30 months due to a lack of clarification from the parent ministry. Can the labor commissioner adjudicate in such cases? Please advise.

Regards,
Deepak B

Since your employer is a Central Institute, the appropriate government is the Central Government. Engage a counsel and file a claim before the area Controlling Authority under the Payment of Gratuity Act, 1972, with a special prayer for interest until the actual payment of the amount.

Dear Sir,

Thank you for your response. As per my discussion with other friends, the ALC (Central) cannot adjudicate on matters pertaining to the payment of gratuity in cases of employees of central autonomous bodies who are bound by separate service rules, i.e., CCS rules. Please clarify.

Regards,
Hridan

Dear Sir,

Can you please reply to my query dated 11/8/16? Do the employees of autonomous bodies, who are covered by CCS rules, file a complaint before the labor office for non-payment of gratuity? Furthermore, how can an employee prove that an autonomous body is necessarily covered under the POG Act?

Regards,
Hridan

Dear Hridan, your query involves a situation abundantly ripe with questions of law and facts, and therefore whatever answers given by others would only be subjective interpretations. With this assumption, I offer my reply to your query as follows:

Clarification on Autonomous Body Details

For the sake of clear understanding, you could've mentioned the name of the autonomous body, its functions, the circumstances under which its constitution was changed, the structure of its staffing (i.e., the existence of independent recruitment by the body and the scheme of deputation from the Central Government), and the like.

Application of the P.G. Act, 1972

By virtue of the notification cited supra, it is an establishment covered by the application of the P.G. Act, 1972.

Exclusion of Deputationists

If its staff comprises deputationists from government departments for whom the C.C.S. (Pension) Rules are applicable, they are excluded from the definition of the term "employee."

Exclusion of Other Employees

Even other employees would also stand excluded if the C.C.S. (Pension) Rules or any other rules providing for gratuity are applicable to them.

Contract Employees and Gratuity

When the C.C.S. (Pension) Rules are not specifically applicable to persons entitled to any CPF, the contract employees for whom EPF subscriptions are contributed by the establishment automatically come out of the coverage of the C.C.S. (Pension) Rules, and only the gratuity as per the P.G. Act, 1972, comes into operation.

Condition for Gratuity Entitlement

It is also noteworthy that the C.C.S. (Pension) Rules stipulate a condition for entitlement of gratuity for contract employees under it, only if it is so provided for in the contract. Perhaps on this point, the establishment awaits clarification from the concerned Ministry, I think.

Legal Recourse for Inordinate Delay

If the delay is inordinate, you can move the High Court of the State under its writ jurisdiction and pray for payment of gratuity together with interest.

Regards